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ETFs to Suffer as US Consumer Confidence Falls to a 9-Month Low

U.S. consumer confidence takes a hit in November from the rising concerns over surging inflationary levels.

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This story originally appeared on Zacks

Consumers continue to remain concerned under the rising heat of inflation levels. The latest data from the Conference Board highlights the depleting consumer confidence levels, as the metric just touched the nine-month-low level in November. The Conference Board's measure of consumer confidence index stands at 109.5 in November, down from October’s reading of 111.6. November’s reading was almost in line with the consensus estimate of the metric, coming in at 111, per a Reuters’ poll. The metric continues to be below the pre-pandemic level of 132.6 in February 2020.

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The Present Situation Index, which gauges consumer views on current business and labor market conditions, declined to 142.5 in November from 145.5 in the previous month. The Expectations Index, which measures consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, also slipped to 87.6 from 89.0.

The disappointing consumer confidence reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that might feel the impact are The Consumer Discretionary Select Sector SPDR Fund XLY, Vanguard Consumer Discretionary ETF VCR, First Trust Consumer Discretionary AlphaDEX Fund FXD and Fidelity MSCI Consumer Discretionary Index ETF FDIS.

Moreover, the survey’s labor market differential, calculated from data on respondents’ views on whether sufficient jobs are available or difficult to get, surged to a reading of 46.9 (the highest on record) from 43.8 in October, per a Reuters article.

Commenting on the data, Lynn Franco, Senior Director of Economic Indicators at The Conference Board, reportedly said, “Consumer confidence moderated in November, following a gain in October. Expectations about short-term growth prospects ticked up, but job and income prospects ticked down. Concerns about rising prices—and, to a lesser degree, the Delta variant—were the primary drivers of the slight decline in confidence. Meanwhile, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months decreased.”

However, the Conference Board is still expecting retailers to witness strength in the holiday season. It is worth noting here that the survey was conducted and completed before discovering the omicron variant of coronavirus. The chances that the new variant could have high transmissibility and lower vaccine potency might further dent consumer confidence in the coming period.

The latest consumer sentiment readings for November also looked very disappointing as the metric has slipped to the lowest level in a decade compared to the previous month. The University of Michigan’s final consumer sentiment declined to 67.4 during November from 71.7 in October. However, the reading still compared favorably with the preliminary estimate of 66.8 in early November.

Consumers seem disturbed about the rising prices of homes, vehicles, food and household durables. The Michigan survey has also highlighted that the buying conditions for household goods have declined to the second-lowest level since the recording of data began in 1978.

ETFs That Might Suffer

Here we discuss in detail the four most popular funds that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):

The Consumer Discretionary Select Sector SPDR Fund

The Consumer Discretionary Select Sector SPDR Fund is the largest and the most popular product in the consumer discretionary space, with AUM of $23.57 billion. XLY tracks the Consumer Discretionary Select Sector Index.

The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.12%. XLY carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook. Also, The Consumer Discretionary Select Sector SPDR Fund trades in a three-month average volume of about 5.9 million shares (read: Home Depot Rises Post Q3 Earnings: ETFs to Buy).

Vanguard Consumer Discretionary ETF

Vanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.

Vanguard Consumer Discretionary ETF has AUM of $7.44 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook. Also, Vanguard Consumer Discretionary ETF trades in a three-month average volume of about 105,000 shares (read: Will ETFs Win During Thanksgiving Week Amid Virus Fears?).

First Trust Consumer Discretionary AlphaDEX Fund

First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, employing the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.

First Trust Consumer Discretionary AlphaDEX Fund has AUM of $1.96 billion. FXD charges 61 basis points (bps) in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, First Trust Consumer Discretionary AlphaDEX Fund trades in a three-month average volume of about 97,000 shares.

Fidelity MSCI Consumer Discretionary Index ETF 

Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.

Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.78 billion in its asset base. FDIS charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook. Fidelity MSCI Consumer Discretionary Index ETF trades in a three-month average volume of about 98,000 shares.



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Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

 

Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports

 

Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports

 

First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports

 

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Zacks Investment Research